Scollick ex rel. United States v. Narula

ANDREW SCOLLICK,ex rel. UNITED STATES OF AMERICA, Plaintiff-Relator, v. VIJAY NARULA, et al., Defendants.

Case No. 14-cv-1339 (RCL)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

November 6, 2020

MEMORANDUM OPINION

Defendants Optimal Solutions and Technologies, Inc. ("OST, Inc."), Vijay Narula, and Ajay Madan (collectively "OST Defendants") move to dismiss plaintiff-relator's second amended complaint (ECF No. 298) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Mot., ECF No. 301. Alternatively, OST Defendants move for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). Id. Because the pleadings have not yet closed, the Court will construe OST Defendants' motion as a Rule 12(b)(6) motion to dismiss. See Fed. R. Civ. P. 12(c). Upon consideration of both parties' submissions (ECF Nos. 301, 303 & 306) and the relevant legal standards, the Court will DENY OST Defendants' motion (ECF No. 301).

I. BACKGROUND

A. Initial Complaint

In mid-2014, plaintiff-relator Andrew Scollick sued eighteen defendants for their alleged involvement in an elaborate and ongoing scheme to defraud the federal government. Compl., ECF No. 1. Specifically, he claimed that the defendants secured (or helped to secure) small-business set-aside contracts for construction jobs by falsely representing their eligibility to bid on those contracts. Id.

This alleged scheme was perpetrated by an extensive cast of characters. The complaint lists the following defendants and their respective roles: (1) five business entities, three of which actually submitted fraudulent bids for set-aside contracts and two of which effectively controlled an entity that submitted bids, (2) the officers and owners who controlled those five entities, (3) a party who provided false information to the government about one of the entities that submitted bids, and (4) two companies that provided the surety bonds needed to obtain the set-aside contracts, those companies' insurance broker, and the insurance broker's president (collectively "bonding defendants"). Compl. ¶¶ 10-175.¹

Relevant to the present motion, the three moving defendants are: (a) Optimal Solutions and Technologies, Inc. ("OST, Inc."), one of the entities that caused another defendant to submit fraudulent bids, (b) Ajay Madan, OST, Inc.'s Chief Operating Officer, and (c) Vijay Narula, OST, Inc.'s Chief Executive Officer. Compl. ¶¶ 11, 15 & 20. The Court will refer to these three defendants collectively as "OST Defendants."

In his complaint, plaintiff-relator brought four causes of action under the False Claims Act, 31 U.S.C. § 3729 et seq., against all defendants. See Compl. ¶¶ 176-225. The relevant text of the False Claims Act reads as follows:

(a) LIABILITY FOR CERTAIN ACTS.-

(1) IN GENERAL. - Subject to paragraph (2), any person who -

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

(C) conspires to commit a violation of subparagraph (A), (B), [or] (G);

. . .

(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government,

is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 . . . plus 3 times the amount of damages which the Government sustains because of the act of that person.

31 U.S.C. § 3729.

Count I of the complaint alleged that the defendants knowingly presented or caused to be presented false or fraudulent claims to the government in violation of subsection (a)(1)(A) ("presentment claim"). Compl. ¶¶ 176-189. Count II alleged that the defendants knowingly made, used, or caused, a false record or statement material to a false or fraudulent claim in violation of subsection (a)(1)(B) ("false statement claim"). Id. at ¶¶ 190-201. Count III alleged that defendants knowingly avoided or decreased an obligation to the government in violation of subsection (a)(1)(G) ("reverse false claim"). Id. at ¶¶ 202-09. And Count IV alleged that the defendants conspired to violate the False Claims Act in violation of subsection (a)(1)(C) ("conspiracy claim"). Id. at ¶¶ 210-225. The government declined to intervene. ECF No. 6.

OST Defendants, along with eleven others, moved to dismiss plaintiff-relator's complaint. Scollick I, 215 F. Supp. 3d at 30. The Court found that "[p]laintiff-relator largely fail[ed] to state claims against the defendants who have filed motions to dismiss" and left only a sliver of the suit intact: it allowed plaintiff-relator to proceed on Counts I, II, and IV against three defendants, including Madan and Narula. Id. at 36. Among other flaws, the Court found that plaintiff-relatorfailed to "sufficiently allege facts showing that the alter ego doctrine applies" to hold the officers and owners personally liable for the acts of the business entities. Id. at 37.

B. Amended Complaint

In response to the Court's ruling dismissing parts of his complaint, plaintiff-relator moved to amend his complaint to cure the pleading deficiencies identified by the Court. ECF No. 131. He sought to add factual allegations establishing liability for the owners and officers in their personal capacities, omit certain defendants whose claims were dismissed, and limit the reverse false claim (Count III) to the bonding defendants. ECF No. 131-1. The proposed amended complaint did not add any new counts, nor did it add any new defendants. See id.

OST Defendants opposed plaintiff-relator's motion, arguing that any amendment would be futile. ECF No. 138; United States ex rel. Scollick v. Narula (Scollick II), 14-cv-1339, 2017 WL 3268857, at *2 (D.D.C. July 31, 2017). The Court disagreed. Scollick II, 2017 WL 3268857, at *17. It granted in part and denied in part plaintiff-relator's request, finding that plaintiff-relator "largely cured the pleading deficiencies previously identified by this Court." Id. Relevant to the present motion, the Court allowed plaintiff-relator to proceed against OST Defendants on the presentment claim (Count I), false statement claim (Count II), and conspiracy claim (Count IV). Id. at *18.

The amended complaint lodges the following accusations against OST Defendants: OST, Inc. is a Washington, D.C. corporation. Am. Compl., ECF No. 169, at ¶ 9. Ajay Madan is the Chief Operating Officer of OST, Inc. and Vijay Narula is OST, Inc.'s Chief Executive Officer. Id. at ¶¶ 13 & 17. Along with Neil Parekh (the president of a construction company) and Amar Gogia (a relative of Madan), Madan and Narula formed a new limited liability company: Centurion Solutions Group, LLC ("CSG"). Id. at ¶¶ 14, 15 & 36.

After forming CSG, defendants Madan, Narula, Parekh, and Gogia fraudulently registered CSG as a service-disabled, veteran-owned small business ("SDVOSB"). Id. at ¶¶ 33-36. For an LLC to qualify as an SDVOSB, "it must be owned, controlled, and under day-to-day management by a service-disabled qualified individual." Id. at ¶ 26 (citing 13 C.F.R. §§ 125.9(a), 125.10(a)). Additionally, a "service-disabled veteran must [ ] hold the highest officer position" and have the managerial experience necessary to run the business. Id. at ¶ 27.

Yet defendants Narula, Parekh, and Madan were not disabled veterans. Id. at ¶ 33. And although defendant Gogia was a disabled veteran, "he was never in control of CSG." Id. at ¶¶ 35 & 38. Instead, Gogia "functioned as a local CSG cite manager" and was at all times "subservient to Narula, Madan, and Parekh." Id. at ¶ 38. For example, on May 31, 2011, Parekh emailed Gogia "threating to remove Gogia as the site supervisor of the CSG Wichita contract if Gogia's job performance did not improve." Id. at ¶ 60. Meanwhile, Madan, Narula, and Parekh carried out CSG's day-to-day business from OST Inc.'s headquarters, where Gogia did not even have an office. Id. at ¶ 54.

Nevertheless, together with Parekh and Gogia, Madan and Narula (on behalf of themselves and OST, Inc.) registered and certified CSG as an SDVOSB. Id. at ¶ 36. To do so, they "falsely assert[ed] that Gogia[] owned 100% of CSG and was in control of CSG's day-to-day business activity." Id. at ¶ 36. In reality, "CSG's majority ownership, operational and financial control and the distribution of CSG profits and resources were controlled by [Perekh], and Madan and Narula." Id. at ¶ 37.

Once OST Defendants falsely registered CSG as an SDVOSB, they started bidding on contracts reserved for SDVOSBs in CSG's name. Id. at ¶¶ 28-32. To do so, an OST, Inc. employee who reported to Narula was tasked with preparing and finalizing "the first fraudulent response toa government contract solicitation made in the name of CSG." Id. at ¶ 40. Specifically, the bid was prepared in response to a "set aside contracting solicitation offered by the United States Department of Veteran Affairs" reserved for SDVOSBs. Id. OST Defendants' proposal, referred to as the "Halls & Walls solicitation response," contained several false statements, including the misrepresentation that CSG is an SDVOSB. Id. at ¶ 48(b). It also falsely represented CSG's past performance and experience in the construction business. Id. at ¶ 48(b), (d) & (g)-(i). After OST, Inc.'s senior management, including Narula, approved the Halls & Walls solicitation response, it was submitted "in the name of CSG on April 7, 2010." Id. at ¶ 40, 42 & 43.

After this initial bid, OST Defendants continued to submit "hundreds of responses to solicitations seeking SDVOSB[] contract awards" in CSG's name. Id. at ¶ 86. Each of these bids "were based off" of the Halls & Walls solicitation response and contained the same "false information" that OST Defendants included in that first bid. Id. at ¶...